In the private sector, budgets are managers’ short term targets, usually for income, expenditure, profitability and output volumes in the coming year

Most public sector budgets cover output volumes (e.g. heathcare episodes, fire incidents or crimes) and costs but not quality and service levels expected – their focus is on input resources needed, not outcomes expected by the public

And there’s little pressure for managers to reduce costs – this has bred a widespread culture of ‘use it or lose it’ – any manager who spends less than his budget in one year can expect to have it reduced for the next year – hence, there’s no incentive for them to try and do more for the public with less

Professor C N Parkinson expanded on this: “Government bureaucracies usually find ways to spend pretty much whatever money comes in – they don’t build their budgets from the ground up – they discover the level of expenditure they can finance without breaking too much sweat and then work backwards to justify that level as essential to meet needs”

Budgets are usually set using last year’s results ‘plus a little’, making them not too difficult to achieve – they’re rarely ‘stretching’

However, if and when managers achieve their budget, most don’t try to do any better or, if they do, they don’t let it show in their results – the budget becomes an upper limit on their efforts – they ‘hide’ any surplus to give them a flying start for the following year

Managers know they’ll be congratulated for ‘meeting budget’, thus helping their promotion prospects, so there’s little incentive for them to do better – another reason they try to keep budgets as easy as possible

Budgets can also lock in waste

If last year’s performance included a 30% waste of resources say, and this year’s budget is calculated simply by adding a percentage, this will not only perpetuate the waste but add to it